There has been quite a bit of chatter about the new 1099 reporting requirements for businesses beginning with expenses paid in 2012. There has been much less chatter about the 1099 reporting requirement that became effective for payments made on or after January 1, 2011 (yes, this year) for taxpayers who have rental income from real property rentals.
The Small Business Jobs Act of 2010 requires taxpayers who lease out rental real estate to issue 1099s to persons and corporations to whom taxpayers make payments totaling $600 or more in a year. Examples of covered payments include repairs, premiums, property and equipment, payments to accountants >:-( , etc.
Bottom line–starting this year, if you rent real estate you have to start tracking exact amounts paid to each vendor, collect a Form W-9 to obtain the vendor’s EIN and address, issue that vendor a 1099 at year end, and send a copy of the 1099s you issued to IRS.
Certain taxpayers are exempt from this 1099 reporting requirements. These exempt taxpayers include:
- individuals who can show that reporting is a hardship (good luck with this one)
- individuals who receive a minimal amount of rental income
- certain military personnel
- The IRS is expected to issue guidance on these exemptions.
Other 1099 reporting requirements
The 1099 reporting requirements for all businesses begin for payments over $600 per vendor made after December 31, 2011. This will be a bookkeeping nightmare for business owners.
Example: You buy gas throughout the year at three gas stations. Two of the gas stations are Marathons and one is a Sunoco. You spend $500 at each location. If the two Marathon locations are separate corporations, you do not have to issue any 1099s since the total payments to each corporation are under $500. However, if the two Marathons happen to operate within the same corporation, you will have to issue a 1099 to the Marathon. How will you know if the Marathons operate under the same corporation? You’ll have to get a Form W-9 from each location to see if they operate under the same corporation. In fact, you’ll pretty much have to get a Form W-9 for any business expense if it’s possible that you may spend more than $600 with that vendor.
There is an exception for payments you make via credit card. If you make a payment by credit card, you will not have to report that payment on a Form 1099. The reason is because credit card companies will have to start reporting credit card receipts by businesses beginning January 1, 2011. Since the credit card company is already reporting the revenue received by the vendor from its transaction(s) with you, you do not have to report the same transaction amount on a Form 1099.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230.